When BlackRock, a substantial financial company, asked to build a bitcoin ETF in America, market observers speculated whether this gigantic asset manager would have a more successful outcome than the many earlier refusals. They rapidly honed in on a system in the request which would alert regulators to any questionable deals.
After BlackRock initiated its filing, many other companies followed suit, adding the Surveillance-Sharing Agreement to their applications. However, what is likely to have a greater impact on the SEC’s decision is an agreement that gives authorities the right to ask for additional information, thus reversing the power dynamic of the arrangement.
Details of a “Coinbase and NASDAQ Information Sharing Term Sheet” shared with CoinDesk indicate that the SEC’s regulation for exchanging surveillance information with a view to hindering market manipulation of crypto is not a novel concept – it was previously seen in the Winklevoss Bitcoin ETF application in 2017.
The contrast between push and pull can be seen in the SSA. In this instance, Coinbase (COIN) is carrying out the data tracking and if the results are questionable, the results can be sent to the regulators, ETF providers, and listing exchanges. In contrast, the information-sharing agreements allow regulators and ETF providers to request the data from the exchange.
Particular trades or traders could be the subject of the information in question, and the agreement would necessitate a crypto exchange to share data consisting of personal information, such as the name and address of the customer. Information-sharing contracts are not present in any of the applications for spot bitcoin ETFs, yet the structure can be seen in other markets.
It is essential to be very exact when requesting information, just like a subpoena, according to someone in the know.
The individual, who wished to remain anonymous, noted that it was necessary to take a more thorough approach than just gathering data on every transaction made between two given points. The individual noted that crypto traders generally do not want their personal information shared, which goes against the ethos of the crypto industry. Despite this, the individual stated that in order for the ETF to be successful, firms must take this step.
A spokesperson for Nasdaq and Coinbase declined to provide any comment. Additionally, BlackRock did not answer requests for comment.
A retrospective of applications for Bitcoin Exchange Traded Funds
In 2017, the SEC underlined the necessity for bitcoin ETF applications to have a surveillance-sharing deal with a regulated market that is substantial in size; however, when it comes to understanding this, companies have been unable to find clarity and an objective criterion.
Making an information-sharing agreement instead of solely relying on surveillance sharing is logical, according to Matt Hougan, the chief investment officer of Bitwise Asset Management, which has frequently attempted to acquire an ETF.
In an interview, Hougan commented that the regulated market provides the capacity to pull while the unregulated market is capable of pushing. He went on to say that the US Securities and Exchange Commission desires that the regulated market is able to conduct surveillance while also being able to determine who is making trades. According to Hougan, this is all part of the necessary agreement.
Ratings of acceptance
The concept of combining both surveillance and info sharing is known to the brokers and exchanges that deal in stocks and shares. These types of markets have the regulator with the power to require more details about a client’s past trading activity.
If a broker’s customer dispatches an instruction to Nasdaq and the exchange’s SMARTS monitoring system flags it as dubious, then both the broker and the exchange must submit a suspicious activity report (SAR).
Weisberger, CEO of CoinRoutes, a crypto trading platform, noted that regulators probing a SAR can proceed to a “second step” that requires PII to determine whether the same beneficial owners are linked to the trades, thereby creating a consolidated audit trail.
Weisberger, in an interview, pointed out that Coinbase, Nasdaq and BlackRock are likely to comply with a regulator’s request for personal information if there is evidence of suspicious activity; however, they will not distribute it freely. He went on to express:
I think if what is said is accurate, then the SEC will not only approve the ETF, but also take a “victory lap” due to their unpopularity. It appears as though they need to do so now.
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